UK hoteliers, government grapple with COVID-19 downturn
UK hoteliers, government grapple with COVID-19 downturn
23 MARCH 2020 8:50 AM

As the United Kingdom’s hotel industry and economy faces unprecedented threat from COVID-19, hoteliers are working together and with the government to strategize and ensure a future for hospitality.

LONDON—The United Kingdom government has responded robustly to the economic gravity of the coronavirus (COVID-19) with a series of loans, grants and other help, but sources said labor is one critical issue facing the industry.

Kate Nicholls, CEO of UKHospitality, said there are more than one million jobs in the U.K.’s hotel and hospitality industry that are in danger of disappearing.

“Companies are having to make the very difficult decisions now, and with many hospitality and leisure businesses now having to choose to close or massively reduce their operations, there is little chance of saving many jobs without far-reaching help,” Nicholls said.

This marks a drastic change in tone from only nine months ago when Nicholls and UKHospitality celebrated the signing of the U.K. government’s sector deal for tourism and hospitality, which recognized its contribution to the economy and newly regarded it as one of the key industries to support.

Hoteliers hoped that legislation would better connect government and business, a relationship that is now in a critical juncture.

Pressure will fall on hoteliers and hospitality bosses, who will not want to risk the weight of additional loans in a period when very little or no income is coming in, Nicholls said.

On 17 March, Rishi Sunak, the U.K.’s Chancellor of the Exchequer—the equivalent of the U.S. Treasury Secretary and who only assumed office on 13 February—spelled out a program of government aid to help businesses.

The emergency package is worth £350 billion ($404.8 billion), equivalent to approximately 15% of the U.K. gross domestic product. It includes £330 billion ($381.7 billion) in loans, the first six months of interest being paid by the government, and between £10,000 ($11,565.57) and $25,000 ($28,913.93) of individual grants for hospitality and other businesses with properties that have a retable (property tax) value of £51,000 ($58.984.41) or less. There is a yearlong holiday from paying business rates, also applicable to hospitality firms.

Grant Hearn, an independent non-executive director at Scandic Hotels and vice chairman of UKHospitality who spent 11 years as CEO of Travelodge U.K., said he is encouraged by the response but believes it has not gone far enough yet.

“As we speak, we are just waiting for some kind of help for individual employees. This has not been announced yet. The government wants us to keep people employed, and with every hour, it is a race against time,” Hearn said.

He added the financial help is not a handout.

“The numbers being used are that the government will pay 70% of wages if we pay the remainder, but that means still paying 30% when no revenue is coming in and with no one with any idea as for how long. Cash soon will be exhausted,” he said.

“The government wants us all to be in a good place when we get out of the crisis, and to have mechanisms that keep people out of welfare, the dreaded universal credit system. But we need to hurry,” Hearn said, speaking of the relatively new welfare-system safety net that remains with teething problems.

Help is out there
New legal powers outlined in the Parliamentary “COVID Bill” will enable further financial support from the government if it is deemed necessary.

UKHospitality’s Nicholls said between 200,000 and 250,000 hotel and hospitality positions have already been eliminated, most in the last few days.

Hoteliers needing to steady their ships should reach out to seek advice, sources said.

Martin W. Fenlon, director of Vista Business Resilience Ltd., a consultant for the Business Continuity Institute and the former head of business continuity at the U.K. government’s cabinet office and business resilience manager at the Houses of Parliament, said business continuity is being challenged by a complex and unprecedented situation.

“Business continuity is the capability to maintain prioritized services in the event of a disruption,” he said. “It is usually based on generic scenarios that can be reasonably anticipated to disrupt business activities. For example, (information and communications technology) systems could fail, we could be faced with a denial of access to our normal places of work, some staff may not attend work, a piece of equipment might fail or a key supplier might go out of business.”

He said the key to success will be effective communication.

“Staff in non-critical roles who are off work will need to be kept informed and even retrained. Customers need to know what products and services you will prioritize and what you will stop doing so they can make informed decisions,” Fenlon said.

He noted this is a chance for businesses to establish themselves a top choice for guests and employees based on how well they handle the turmoil.

“What you do or stop doing needs to monitored for unforeseen consequences, but if you treat staff and customers well, there is an opportunity here to enhance your reputation,” he added.

February hotel performance across the U.K. fell in all three metrics, according to data from STR, the parent company of Hotel News Now. Although it is March that is expected to show the first major performance declines, notably in occupancy, due to COVID-19.

In February year-over-year data, the U.K. saw a 0.8% decline in occupancy to 72.1%, a 0.4% decline in average daily rate to £83.30 ($96.34) and a 1.2% decline in revenue per available room to £60.06 ($69.46).

For the same period for London, occupancy dropped 2.5% to 76.2%, ADR dropped 0.4% to £133.39 ($154.27) and RevPAR dropped 2.1% to £101.59 ($117.49).

Relationships with banks and landlords will be key to survive this downturn, Hearn said.

“We require guarantees; no one will use this as an opportunity to displace businesses or take money we frankly do not have at the moment. There must be covenant holidays for business people in exceptional circumstances,” he said.

Hope eternal
Hearn said the virus crisis is “so far out there” it does not allow hoteliers to be in control of cost issues.

“It could remove the whole of the top line. There is no real end in sight. A couple of months, or 18? The minimum is that it will end in a recession,” Hearn said.

But Hearn also remains hopeful.

“At Travelodge, we went through financial crises, and even if people change their buying patterns, most go back to where they were,” he said. “There are differences now. Online shopping and delivery service, for example. Neither are good for society as it makes us more insular. A couple of generations will go through this (coronavirus crisis) and will come out of it better and more experienced.”

Hearn said hoteliers should be prioritizing four things:

  • Stay in touch with the industry via webinars and online forums at UKHospitality and other outlets. Hearn said there is a lot of good information in the public domain that remains unread.
  • Get in touch with your local tax office, though if time is needed to pay, that might be less effective that calling the national, central phone number. Reaching that office will take a longer time, but things will happen quickly once you do.
  • Hang onto your staff, and those employees will remember what you did for them.
  • Get into discussions with landlords and banks, certainly as this the current month coincides with the latest quarterly rent rolls.

Hearn said the future would also see public-equity companies being more active.

“A lot of private equity will look, although no one will do anything about that right now,” he said. “It should be added it is not all asset-strippers. Some of the things we did at Travelodge we could only have done with private equity.”

This crisis will likely reveal which companies are better-positioned than others.

“It is as Warren Buffett said, ‘You only find out who is swimming naked when the tide goes out.’ Good, healthy companies will survive, but we have already seen Laura Ashley and Flybe suffer,” Hearn said of two U.K. firms with hotel and tourism interests.

Hearn said problems also are being felt in Scandic’s main market of the Nordic countries, with all its countries responding in different ways. Denmark, the region’s smallest country, initially was the most proactive.

“Scandic has had a fantastic year, good dividends and the launch of a new budget brand. When the company was floated in 2016, its shares were worth 66 Swedish krona ($6.35), and that went up to 116 krona ($11.17). Right now it is 23.88 krona ($2.30),” Hearn said of a share-value plummet now common across the industry.

“And how can (the Nordic countries) be compared with the U.K., which has a huge population and economy. The problem is, how does a country that large scale up the response?” he said.

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